Erik Thedéen: Better economic performance thanks to economic policy frameworks

In recent years, the framework has been tested by a combination of shocks that pushed up inflation substantially for the first time since its introduction in the 1990s. Households and companies have been under considerable pressure. It is precisely in such situations that the frameworks are seriously tested," said Mr Thedéen.

"There is always room for debate on the details of economic policy implementation itself, but the overall rating for the framework is good. Monetary policy has acted to bring inflation back down to the 2 per cent target within a reasonable time. They took responsibility in wage formation and refrained from compensation claims. If inflation had become entrenched at a higher level, the situation would have been much worse. Inflation has now stabilised close to the target and the conditions are in place for economic recovery and rising real wages."

Mr Thedéen said that the frameworks had largely worked well, not just in recent years, but over the whole period since the 1990s. In an international perspective, Sweden is characterised by our frameworks and how we live up to them, not least in terms of fiscal policy. For example, we are one of the countries in the EU with the lowest interest payments on our public debt. It is important to have strong public finances so that Sweden's government has room to act forcefully in times of crisis. There is thus an insurance argument here.

"The fact that the frameworks have worked well does not mean that they cannot be changed if there are good reasons for doing so. It is good to have regular reviews. But it is important to carefully assess any changes in terms of their potential impact on confidence in fiscal and monetary policy. We must not allow doubts to arise about the sustainability of public finances in such a way as to undermine confidence in the existence of order. Confidence in inflation targeting is not only important in its own right but also a necessary condition for the effectiveness of fiscal policy."

Mr Thedéen also touched on the division of roles and the interaction between fiscal and monetary policy.

"There may be ways to improve the mix of fiscal and monetary policies, for example by developing information-sharing arrangements. But I have my doubts about proposals to formalise coordination. Firstly, it is important that monetary policy is conducted independently, and secondly, it suggests an overconfidence in the possibility of 'fine-tuning' stabilisation policy."